Californians who lost their home insurance because of the threat of wildfires will be able to buy comprehensive policies next year through a state-mandated plan under an order issued Thursday by the state insurance commissioner.
Devastating wildfires have plagued the state in recent years, destroying thousands of homes. Those claims have cost insurance companies, who have responded by dropping fire insurance policies for many homeowners who live in fire-prone areas.
Most of those people turn to the California Fair Access to Insurance Requirements Plan, an insurance pool mandated by state law that is required to issue policies to people who can’t buy them through no fault of their own.
But FAIR Plan policies are often limited to fire damage, forcing homeowners to purchase separate plans to get coverage for things other than fires, like theft, water damage, falling objects and liability.
Thursday, California Insurance Commissioner Ricardo Lara ordered the Fair Plan to begin selling comprehensive policies by June 1 to cover lots of other problems, including theft, water damage, falling objects and liability. He also ordered the plan to double homeowners’ coverage limits to $3 million by April 1 and to let policyholders use credit cards or electronic funds transfers to make monthly payments without extra fees.
“You have people that now are being sent to the FAIR Plan and they have no other alternative. They won’t even get a call back from an insurance company to offer them a quote,” Lara said.
But California FAIR Plan Association President Anneliese Jivan called the order “a misguided approach.” Started in 1968, the FAIR Plan is not funded by tax dollars. Instead, all property and casualty insurance companies doing business in California must contribute to the plan.
Jivan said the FAIR Plan was created to make sure everyone had access to basic property insurance. She said forcing the plan to offer more complex comprehensive policies “would have unintended consequences that could ultimately hurt consumers.”
“It will also result in increased operating costs that will be passed along in the form of higher rates for all policyholders,” she said.
Department of Insurance spokesman Michael Soller disagreed. He said the optional comprehensive policies would cost more, but consumers would save money by not having to purchase multiple policies.
“The goal of this part of the order is to allow consumers to purchase a single policy, which we expect will be less expensive than having to buy two policies to get comprehensive coverage,” Soller said.
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Tony Cignarale, Deputy Commissioner of Consumer Services at the Department of Insurance, said the department expects the FAIR Plan to set rates that break even. Insurance companies must cover any loses. Likewise, insurance companies get money back if the plan makes a profit — but only after approval from the Department of Insurance.
Known as the “insurer of last resort,” the plan has been growing in recent years as wildfires have become bigger and more frequent because of climate change. FAIR Plan policies in fire-prone areas have grown an average of nearly 8% each year since 2016, according to the Department of Insurance.
Since 2015 insurance companies have declined to renew nearly 350,000 policies in areas at high risk for wildfires. That data comes from the state, and it does not include information on how many people were able to find coverage elsewhere or at what price.
The FAIR Plan is governed by a board of directors appointed by various government officials. Lara says he has the authority to reject its operating plan. On Thursday, he ordered it to submit a new plan within 30 days that includes an option for comprehensive policies and other changes.
FAIR Plan policies have been limited because, in general, the insurance industry doesn’t want state-mandated plans to compete with private insurance plans. But Amy Bach, executive director of United Policyholders — a nonprofit advocating for consumers in the insurance industry — says her group is “hearing from panicked consumers daily.”
“If (insurance companies) don’t like it, the solution really is to start doing their job and selling insurance again,” she said. “This is an untenable situation.”
